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Monday, April 03, 2017

The Gulf in terrorist finance control

Arab Gulf governments are repeatedly
accused of aiding terrorist financing on and, more often, off the record. Calls
to get tough on these states have been side-lined by political and economic
expediency, while Gulf moves to curb such funding have been lacklustre, with risks
in prospect, reports Paul Cochrane, from
Beirut.

Terrorist
financing is continuing
in the Middle East, highlighted
by the devastating attack in
Istanbul over the new year. Radical
Islamic groups still operate
in Iraq and Syria, notably the Islamic State, or ISIL (also
known as ISIS), and their
source of funding is
a contentious issue.

Currently
the issue is tied up with the Syria conflict due to the number of
armed actors involved. On one side is the Syrian regime, backed by
Moscow and Tehran. Iran, being
a Shia Muslim republic,
supports Hezbollah, the Shia
Islamist militant group and political party based in Lebanon, which
is deeply involved in the Syrian conflict. On
the other side are the rebels, which include radical Sunni Muslim
groups such as ISIL, Jabhat al Nusra (renamed Jabhat Fatah al-Sham in
July 2016) and Al Qaeda, which are also under international
sanctions.

The
pro-regime Syria group claims Sunni
terrorist organisations are
funded by the six Gulf
Cooperation Council (GCC), especially Saudi Arabia and Qatar – the
other four being Bahrain, Kuwait, Qatar, Oman and the United Arab
Emirates (UAE) and
their allies, the United
States, the UK and Turkey.
But the
GCC states deny
any terrorism funding,
although openly supporting
rebel groups wanting to
oust Syrian President Bashar Assad: so
has the US government,
which has joined
Saudi Arabia in openly
support Syrian rebels, along
with theUK.

But
while Syria and Iran have been labelled ‘state sponsors of
terrorism’ by Washington,
countries judged by the US Secretary of State to repeatedly support
terrorist acts, with the US
Senate on 1 December 2016
extending the Iran and
Libya Sanctions Act of
1996 (ISLA) for another 10
years, the GCC states have not been rapped over the knuckles by the
US or other international bodies over terrorist financing.

In
private, however, more forthright opinions have been expressed: “We
need to use our diplomatic and more traditional intelligence assets
to bring pressure on the governments of Qatar and Saudi Arabia, which
are providing clandestine financial and logistic support to ISIL and
other radical Sunni groups in the region,” reads a leaked
email between Secretary of State Hilary Clinton and John Podesta, a
Counselor to President Barack Obama, dated 17 August 2014.

In
2009, another leaked
Clinton memo stated: “Donors
in Saudi Arabia constitute the most significant source of funding to
Sunni terrorist groups worldwide.” It
also said that the UAE was “a
strategic gap” that terrorists can exploit, Qatar was “the worst
in the region” on counterterrorism, and Kuwait “a key transit
point”.

The
US Treasury has kept quiet on
the matter, with the
emphasis on individual funders, not GCC governments. “The top US
official for terror finance said in 2015 that Arab Gulf monarchies
are the largest source of donations to Al Qaeda,” said
Dr David Andrew Weinberg,
Senior Fellow at the
Foundation for Defense of Democracies in Washington DC.

He
said the likely reasons
were “the high
concentration of millionaires and billionaires in that area, and “the
intense religious currents in the region. Putting those two together
seems a higher risk for terrorist financing incidents”.

This
position is echoed
by Dr Theodore Karasik, Senior Advisor at Dubai,
UAE-based consultancy Gulf
State Analytics (GSA).
“The (GCC) governments do an excellent job of trying to halt
(terrorist financing) activity but because of sympathies and also the
inability for 100 percent border control, there are going to be
leaks. These gaps need to be filled with more proactive action
instead of reaction,” he said.

Meanwhile,
the US Department of State’s
March 2016
International Narcotics Control Strategy Report (INCSR) cites private
individuals and charities as potential
terrorist financers.
Saudi Arabia, Qatar, Bahrain and Kuwait were
all labelled a
“Jurisdiction of Concern’, while the UAE was deemed a
‘Jurisdiction of Primary Concern’ and Oman a ‘Monitored
Jurisdiction’ (lower
risk).

Selective
vision

Cynics
say the unwillingness to act against the GCC states over terrorist
financing is due to political expediency. GCC states, while hosting
US and UK military facilities, are not only seen as long-standing
allies, there is the allure of
petrodollars (revenue from
petroleum exports). “An
important element of not seeing Gulf leaders put to task is that they
are influential... and have a great deal of money,” the
FDD’s Dr Weinberg
said.

But
ignoring GCC
activities is counter-productive,
David L. Phillips,
Director
of the Programme on Peace-building and Rights at Columbia
University’s
Institute for the Study of Human Rights, told MLB:
“When you politicise the decision around sanctions you undermine
the whole effort against terrorist financing. If it is [GCC]
government policy [to support terrorism] then the US needs to react
bilaterally,” and individual views
also need considering, said
Mr Phillips, a
former senior adviser to the US State Department in Iraq.

Questions
over US support for Syrian rebel groups finally
led to abill,
introduced on 29
June 2016, to create
the ‘Stop Terrorist Operational Resources and Money Act’ (STORM),
aimed at “prohibit(ing) the US government from using American
taxpayer dollars to provide funding, weapons, training, and
intelligence support to groups like the Levant Front, Fursan al Ha
and other allies of Jabhat Fateh al-Sham, al-Qaeda and ISIS, or to
countries who are providing direct or indirect support to those same
groups,” said the
legislative text.

The
Act, proposed by
Democratic Senator Bob Casey (Penn.), if
adopted,
could change existing
policy. “STORM would basically create new statutory penalties for
countries in the gray zone - sins of omission. That might create new
incentives in GCC-US relations to address current issues,” said Dr
Weinberg.

Independent
will

Meanwhile,
the GCC states have certainly
acted as if they are addressing CFT
(combating the financing or terrorism)
issues. In
November 2014, they adopted theManama
Declaration on CFT, and were
part of the 34-state Islamic coalition that signed the Jeddah
Communique to fight terrorism – on 11 September 2014.

But
critics say these
moves and anti-money laundering(AML)
regimes over the past 16 years have not been overly proactive. “I
kept pounding the table over a decade ago to pay attention to the
Gulf but little traction was taken. Since 2001, the region started to
get its act together. The problem is, I have no sympathy any more as
the infrastructure is there but what is lacking is enforcement and
initiative. If the US or Britain goes to Saudi Arabia or Kuwait and
says, ‘look into this’, they will, but will not do so from their
own initiative,” said Board Adviser for the FDD’s Center on
Sanctions and Illicit Finance ( C SIF), John Cassara.

The
Jeddah Communique
has also not been well enforced, argue
experts: “The Gulf states pledged
to combat terrorist financing and repudiate the ideology that
underpins violent extremist groups but many have failed to follow up
on this. I don’t believe Qatar and Kuwait have convicted anyone on
the US on UN designation lists, which seems a clear violation of the
Jeddah Communique,” said Weinberg.

GSA’s
Dr Karasik points out a different mindset towards enforcing
international regulations. “You don’t see it manifested in
convictions but in a resignation or early retirement, or some action
done on their terms, not dictated by outside,” he said. “Having
said that, it does have an impact, as their continued move to
compliance and transparency helps Arab states perform their
(regulatory) transformation.”

A
further challenge is that only three GCC states - Bahrain, the UAE
and Saudi Arabia - have issued lists of terrorist organisations, Dr
Weinberg said. “That
further exacerbates the problem of identifying which groups are OK to
be funded out of these jurisdictions.”

Risk
to reputation?

The
banking sector has also fallen foul of terrorist financing. Six
Arab banks have lost their correspondent (deposit)
banking relationships with the US in recent
years, the first a Saudi Arabian bank in 2013
– the Al Raji Bank.
But this is less related to
CFT regime concerns and more to do with increased
compliance requirements on a range of
AML-CFT rules laid down by the Financial Action Task Force (FATF) and
the US government.

An Arab Monetary Fund study,
published in September 2016, found that foreign banks were de-risking
due to (in order of importance): lower overall risk appetite, legal
and regulatory changes, lack of profitability in correspondent
banking, sovereign credit risk ratings, and concerns about AML and
CFT risks in Arab countries.

“Reputational
risk was already a concern when foreign investors look at new
investment opportunities in the GCC. Because of heightened US
requirements for transparency and compliance, this type of action
helps to illuminate potential terrorist financing in the region,”
said Dr Karasik.

Moreover,
given the ongoing good relations between the West and the GCC, there
is not, at least yet, any major reputational risk concerns for
foreign institutions dealing with the Gulf. “There will be pressure
on de-risking but also ongoing pressure to seek money from GCC
institutions. After the economic shocks in the US and Europe, and
currently the refugee crisis, I don’t think de-risking is
necessarily going to happen to the extent it should,” said
Weinberg.

The
FDD’s Mr Cassara, a former US Treasury special agent, agreed:
“Right now I think there is nothing to worry about. Big banks in
the region are doing what they need to do to adhere to international
norms from FATF and the US. Could I see a shift? Yes. But nobody
knows what is going to happen with the new (Donald) Trump
administration.”

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Profile

Paul Cochrane is the Media Director and Co-Founder of Triangle Consultants (triangleconsultants.net) in Beirut, where he has lived since 2002. He has written for over 80 publications worldwide, covering business, media, politics and culture in the Middle East, East Africa and the Indian subcontinent. He is also a media commentator, and has appeared on CBS-NYC radio, Canada's CTV and CBC Radio, Press TV, Etejah TV, Future TV, Al Manar, Sahar TV, Today FM Ireland, and South Korea's TBS eFHM radio.